Sao Paulo

Money manager Rob Young has energy stocks to thank for beating 98 per cent of emerging-market peers this year.

His $67 million ICON Emerging Markets Fund is up more than 4 per cent, compared with a 2 per cent slide in the MSCI Emerging Markets Index. Energy and materials account for about 40 per cent of the fund — almost triple their weight in the stock benchmark measure.

“We’ve been expecting for about a year now that the energy and materials sectors would regain their leadership position,” said Young, 36. There’s a 15-20 per cent upside for energy from here, he said in a telephone interview from Chicago, where he’s based.

It’s a turnaround from 2017, when the big winner in the developing world was the 60 per cent rally in information technology. Those stocks are up only a bit more than 1 per cent this year, compared with a 6 per cent increase for energy. Oil producers got a boost this year as crude prices jumped by about 20 per cent amid supply cuts.

Among the fund’s main holdings are oil producers such as Russia’s Lukoil PJSC and Rosneft Oil Co PJSC, as well as China’s CNOOC Ltd. and China Petroleum and Chemical Corp., according to data compiled by Bloomberg as of March 31. The stocks have all jumped at least 20 per cent this year.

The firm also invests via a fund dedicated to natural resources that’s part of ICON’s $2 billion of assets. The Salt Lake City, Utah-born money manager says he’s particularly optimistic about Russia because earnings have improved and companies have benefited from the country’s sovereign upgrade to investment grade earlier this year. He’s also betting on the Indonesian coal market with miners including Indo Tambangraya Megah Tbk PT and PT Bukit Asam Tbk.

As for materials, Young says stocks appear to be at fair value, but he’s bullish on underlying industries such as paper and packaging manufacturers that should benefit on rising demand from e-commerce companies that use cardboard and paper for shipping. There, he sees another 20 per cent upside, and holds companies including Hong Kong-based Lee & Man Paper Manufacturing Ltd. and Nine Dragons Paper Holdings Ltd.

Young, who joined ICON in 2015, says the firm hasn’t shifted its portfolio much this year, not even after the sell-off that erased this year’s emerging-market gains, because he’s looking at a one- to two-year return period.

“From how we look at the world now to how we looked a couple of months ago, growth in emerging markets hasn’t deteriorated,” he said. “There are still opportunities out there and they are mostly focused on these natural resources sectors.”